3 heads

Tuesday, June 28, 2011

I would be much obliged if a reader in the UK would please pop down to William Hill for me and place a lot of money on Christine Lagarde at 20-1, as she’s listed on the William Hill site, or even at 14-1, where the Economist has her.

The rest of his post explains why the favorites were not viable. In a follow-up, Felix reported that he ended up getting only £25 down at 10-1. William Hill would not give his runner the £100 he wanted. (Lame!)Nice call, nevertheless. The news broke today that Lagarde was selected as the new head of the IMF. Cha-ching!

Asked by The New Yorker, Daniel Negreanu, one of the game’s greatest proponents and a champion player from Canada, said, “The stock market is gambling, right? This kid studies and he makes money in the stock market, and this is considered okay by society. A poker player, a kid, sees all these idiots making poor investments on these poker hands, and says, ‘Wow, I could do a better job than they’re doing,’ and he studies, and he makes it. How is that different, realistically, than a stockbroker? I mean, I don’t see the difference.” Eric Lindgren, another legend of the game, qualified that answer somewhat: “Well, there’s more cheating and collusion in the stock market.”

Sunday, June 19, 2011

Betfair has several million customers worldwide including at least 1/4 million Australian customers. The product is highly regarded and many traditional bookmakers use Betfair to offset large liabilities. Betfair has revenues over USD$500 million and a net income of around $15 million. So when the stock was floated on the AIM stock exchange at 13 British Pounds (about USD$21) it should have been eaten up but instead the stock price has tumbled. Since its introduction, the stock lost half its value and today trades just over 8 British pounds. Betfair certainly has the volume but unfortunately gross profits are declining and the company’s income just isn’t what investors had hoped for. In fact many investing sites in Europe have suggested that Ladbrokes (a traditional bookmaker) offers better value for the investor than does Betfair. In fact as a result of its dropping price, many on Betfair’s management team were let go in April.

The question that has to be asked is why? What was supposed to be the end all and be all of betting has turned out to be anything but. Some theories are that old time gamblers (particularly in Britain) aren’t willing to adapt to something new and thus prefer the bookmaker model while others suggest the U.S. is the culprit. While Betfair never allowed U.S. customers they did purchase TVG last year hoping to introduce its exchange in the United States in an effort to generate more interest in the product. No doubt they are also hoping to become a major player if and when online sports betting is legalized in the United States. But all the talk about the betting exchange in California has failed to generate much buzz. Surveys seemed to suggest that Americans still prefer the old pari-mutuel model. Of course that shouldn’t come as a surprise. All the other companies mentioned earlier, except Betdaq catered to the U.S. market and as mentioned none of them really took off. It appears that Americans just don’t understand the concept o an exchange or more likely don’t see the value in it. Americans seem to prefer to just bet and watch the games rather than trading sports events as they would stocks.

Henderson's point is that bettors may get just as good a deal from bookies (UK and Offshore, maybe. Certainly not in Nevada) as from betting exchanges. Agreed. But, let's separate racing from sports and the UK from the US. For UK sports bettors, Betfair does not always offer better or more wagering opportunities than traditional bookies, so bookies can compete if they are aggressive. When it comes to horse wagering, pari-mutuel wagering is not the dominate wagering system. For straight bets, bookies set the odds and take bets at fixed prices. Players can shop for the best odds, which may not necessarily be on an exchange. One thing exchanges do, however, is force the bookies to be more competitive.

Clearly, Betfair is not putting bookies out of business. Here is UK market share as reported last spring by eGamingReview:

February's top 10 bookmakers on Oddschecker:

1. bet365

18.9%

2. betfair

15.7%

3. Paddy Power

8.4%

4. William Hill

8.3%

5. Victor Chandler

7.6%

6. Stan James

7.3%

7. Coral

5.7%

8. Skybet

5.0%

9. Boylesports

4.4%

10. Betfred

4.3%

In the US, however, pari-mutuel race wagering is not only the dominant format, it is the only format. And any U.S. player who thinks that pari-mutuel wagering is a good system is looney! The pari-mutuel system was invented in France and designed for bookies who can't do math. There is nothing beneficial about it to the player, yet:

Surveys seemed to suggest that Americans still prefer the old pari-mutuel model.

What this says is that Americans prefer to pay 20% commission and have only a vague idea of what odds they might actually get. Insanity! These are not the players that will grow the U.S. market. The toteboard will continue to accommodate them while California hopes to bring in new, less gullible players, when exchange wagering makes its debut next May.

According to a panel assembled for the National Council of Legislators from Gaming States, exchange wagering will change everything

Indeed.

In the UK, rather than racetracks taking revenue out of a pari-mutuel pool, the bookies pay a tax to the Horserace Betting Levy Board. During the high-tax period of the 90's, many bookmakers operated in Gibraltar and the Isle of Man. When the tax was lowered, the books returned to England. Taxes have since increased and the books are once again returning to Gibraltar. (By the way, there are job opportunities.) Betfair has returned to Gibraltar, and while they could avoid paying anything to the Levy Board, they have "magnanimously" continued to support racing. From the Independent:

Betfair, the biggest online betting company, will hand over a £6m lump sum to the Horserace Betting Levy Board this month.

The donation makes Betfair the first major operator not under a UK licence to commit a sum equal to the levy requirements. Betfair moved off shore to Gibraltar this year and therefore was not required by law to pay the levy.

Martin Cruddace, the company's chief legal and regulatory officer, said: "Betfair has a strong track record in supporting British racing and this substantial figure is testament to the commitment we have in seeing the sport thrive.

Tuesday, June 14, 2011

Thanks to the exceptionally obnoxious UIGEA, funding offshore wagering accounts is cumbersome. One of the charges leveled against Internet poker sites during the recent crackdown is money laundering. Reportedly, one of the big players accepted credit card charges for non-existent flowers at a phony online florist site. (I wonder if different flowers represented different chip denominations. e.g. black-eyed susans: $100, red-roses: $25.) Well, it's hard to gamble if you can't pay or get paid.

Perhaps the answer to this funding problems has arrived; perhaps the advent of Bitcoin will short-circuit Uncle Sam's (and Uncle Zhou's or any other Uncle's) strong-arm tactics.

Bitcoin eliminates government control of currency and the banking sector's control of transactions. The development of Bitcoin is one of those rare unexpected events that could have a huge economic and political impact: a true black swan. What is a black swan? First of all, everyone should read either or both of Nassim Taleb's books: Fooled by Randomness or the Black Swan for a more complete explanation, but the following is from the Black Swan's jacket:

A Black Swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in out own personal lives.

Ask most people what the most dangerous thing man has ever created is and you will almost certainly receive the uniform response of “nuclear weapons.”

Lo, there is another far more nasty entity in existence that most people have never heard of.The Bitcoin.

and

I don’t want my joking to fool you into thinking that this isn’t the most important development in human history.It is.When people can be paid in a currency that is impossible to trace, impossible to take, and impossible to tax – the governments of the world will all fall to the dustbin of history.

Hyperbole? I can't help but agree that the advent of Bitcoin could be one of those great, earth-shattering moments of history. Governments consigned to the dustbin of history? Seems unlikely, but who knows for sure. (Randomness, in the end, is just unknowledge. The world is opaque and appearances fools us. - Taleb) How Bitcoin will change the future, if at all, is unpredictable, but we may be watching a revolution in the making. That's exciting. If you've ever read, 10 Days that Shook the World, the excitement John Reed conveys about the 1917 Bolshevik Revolution is the kind of excitement Bitcoin is generating among some of the modern-day commentariat.

Now for the more prosaic: as far as I know, no offshore books accepts Bitcoin as payment. Honestly, it would be difficult due to the fact that the Bitcoin exchange rate is incredibly volatile. The price changes so rapidly that it is impossible to set a price for anything. How could I charge 1 BTC for my book one minute and either 2 or .5 BTC five minutes later? (For the time being, I'm still concerned how much BTC's are worth in dollars since I can't use BTC at the grocery store.) Until the price stabilizes, the only viable solution would be to avoid converting Bitcoins into dollars; rather, just leave them in your offshore account unconverted. Eliminate the conversion step and make wagers in BTC denominations. It would certainly be convenient to be able to send a few BTC directly from my computer rather than trundle down to the Western Union office. I think I'll email that suggestion to some offshore bookies.

In the end we are being driven by history, all the while thinking that we are doing the driving. -Taleb

Sunday, June 5, 2011

I can guarantee you this: the major hotel-casinos want nothing to do with taking more risk; their market is the low-hanging fruit: easy, tourist money.

My argument then was that companies like Caesars Entertainment would never allow their own sports books to be run in an aggressive, risky style that Las Vegas Sports Consultants espoused after it was acquired by Cantor. That was based on the assumption that Caesars Entertainment would still be running their own sports books, but that might all change according to Gaming Today:

Cantor Gaming will take over operation of the Caesars Entertainment sports and race books, according to a deal that will probably be complete by the end of the month.

The confirmation of this still-developing deal comes from three different sources familiar with the negotiations but who could not be identified because they do not have official spokesman status.

Cantor is said to be interested in making its first installation at Caesars Palace and then moving to the other books one at a time until a Caesars Nevada network is complete. Timing is crucial, because both Caesars and Cantor officials would want to have a showplace kind of facility ready for the start of football season.

Cantor is willing to completely eliminate Caesars' exposure to sports betting risk and management hassles by taking over that portion of the business. Caesars would receive a flat, predictable fee from Cantor for the rights to run the sports book.

One of the details of the pending agreement will have Cantor (or the successful bidder if this should end up going in another direction) agreeing to a $50 million guarantee – $5 million a year – over 10 years. This figure has been based on an average of book profits over the last several years.

Prima facie, this sounds like a good deal since Caesars would earn the same amount of revenue without having to manage a rather insignificant (from their point of view) portion of the casino business that executives have struggled to understand and integrate into the rest of their operations. Sports betting has always been the misunderstood, reclusive stepchild toiling enigmatically in a dark corner. Nevertheless, does Caesars really want to give up control of any portion of their gaming business no matter how trivial and awkwardly different it is from other games? I suspect the equation is not so straightforward. In the past, those who outsourced sports wagering were viewed as 2nd tier, local establishments that didn't have the resources to run their own book, like this list from Wikipedia of Las Vegas casinos with Leroys outlets (soon to be William Hill) :

The idea of outsourcing the sports book of a major player like Caesars is a radical change and although I'm not convinced it is a good move for Caesars, the shift in bookmaking philosophy away from corporate conservatism to one of aggressive risk taking will benefit the player with better odds and more wagering opportunities. The primary motivation of sports book managers in the past has always been to earn steady income without taking unnecessary risk, the sportbook being not much more than an ancillary service provided to casino customers. Cantor believes that this has been a great missed opportunity; they are obviously confident that they can substantially surpass what Caesars has earned or they would not be willing to pay an amount equal to Caesars' average revenue for the chance to try. Only time will tell whether Cantor is correct or overconfident, but time for this year is getting short. Football season is rapidly approaching and if a deal is to be done, it better be done quickly.

Gaming Today also adds a prediction that if Caesars makes a deal with Cantor, MGM, the 2nd largest Casino corporation, will make a deal with William Hill, the UK based bookmaker who is in the process of acquiring the Cal-Neva and Leroys outlets, in which case one could say that Nevada is reaching the end of an era, the era of casinos running their own sports books.

But, let's say that Caesars and Cantor agree on a 10-year deal and Cantor makes beaucoup bucks in that time. Will Caesars renew the lease? Or, feeling like they've missed out, decide to get back into the sports betting business. Or will they just buy Cantor? (Assuming either or both are still in business.)

One item not mentioned is the fate of the race books. Would Cantor run those, too? Does either party care?